Taxes and Chapter 7 Bankruptcy
Taxes and Chapter 7 Bankruptcy
Many people have questions about taxes and Chapter 7 Bankruptcy in PA. For the most part, almost everyone is required to pay taxes so it is no surprise that tax debt affects many people. This is especially true if you own your own business or have non-traditional types of income. What most people do not realize is that many past-due taxes can be discharged in Chapter 7 bankruptcy. While it’s easy to say that many past-due taxes can be discharged, determining which taxes are dischargeable can be more difficult. In Bankruptcy law, there is a well-established set of rules called the “Five Rules” for determining what types of taxes can be discharged.
The “Five Rules” are:
- The Three Year Rule (507(A)(8)(A)(I))
- The Two Year Rule (523(A)(1)(B))
- The 240 Day Rule (507(A)(8)(A)(II))
- The Non-Fraudulent Return Rule (523(A)(1)(C))
- The No Tax Evasion Rule (523(A)(1)(B))
These rules, like many areas of the Bankruptcy Code, are difficult to understand. For this reason, it is important to hire experienced attorneys who have handled many tax discharge cases in the past. Even when some taxes are not dischargeable such as priority claims, our attorneys may be able to discharge all interest and penalties. In many cases, the penalties and interests in a tax discharge case may equal up to thousands, if not tens of thousands of dollars.
